With all three major indices in bear market territory, there hasn't been a better time to buy stocks than now. You heard me right -- I think now is a great time to buy stocks.
Here's why: The stock market has always recovered after a downturn. It doesn't matter how bad of a catalyst it was -- the Great Depression, the Great Recession, or the COVID-19 pandemic -- the market has always reached new highs.
It's all right if this move seems scary; it takes a lot of guts to buy when others are selling. However, years from now, you'll be able to look at the low prices you paid today for great companies and enjoy the strong returns. So let's look at some companies I think are too cheap to ignore.
Alphabet
Alphabet (GOOG 0.74%) (GOOGL 0.55%) is square in the crosshairs of a recession. With more than 80% of its business coming from advertisement sources, revenue growth will be challenging in a recession. That's because many companies reduce their advertising budgets during tough times, as it is one of the easier costs to control. Still, Alphabet managed to increase its sales by 13% in Q1.
However, earnings per share (EPS) fell from $1.36 last year to $1.21 this year. While Alphabet posted a solid 28% operating margin, Alphabet's CEO Sundar Pichai wants to make the company 20% more efficient, and may cut jobs to achieve that.
So even if Alphabet's revenue stays flat or falls, its increased efficiency should reverse its falling earnings trend. But here's the kicker: When the economy recovers and advertising spending comes roaring back, Alphabet's efficiencies will still be in place. This combination will cause Alphabet's earnings to explode and drive the stock higher.
With the stock trading at an already-low 18.4 times earnings, there's plenty of upside for Alphabet's stock, especially during the recovery phase.
Twilio
If you've ever received a text message from your doctor's office to confirm an appointment or received order updates, then you've already had first-hand experience with Twilio's (TWLO 1.08%) product. Twilio's communication APIs (application program interfaces) make it easy for non-programmers to create these custom solutions. While text messages are Twilio's primary use, it also has video, email, and programmable voice products.
Twilio's stock was overhyped last year, as shares were valued at nearly $315. Now the stock is down nearly 85% from its all-time high, and looks undervalued.
In Q2, Twilio grew revenue organically 33% year-over-year (YOY) to $862 million. CEO and co-founder Jeff Lawson also reiterated his projection of growing revenue organically by at least 30% annually through 2024. For this massive growth, investors can purchase Twilio's stock for 3.6 times sales. That's about the same as legacy tech companies Oracle (3.9) and Cisco Systems (3.3).
That's a bargain price for Twilio, and investors should utilize the current disdain for tech stocks to their advantage.
MeracdoLibre
MercadoLibre (MELI -1.79%) is the top e-commerce company in Latin America. But it also has a booming fintech business that investors should pay attention to. Furthermore, MercadoLibre's stock has been relentlessly sold off this year, likely due to its association with other pandemic-era stocks.
This sell-off is despite incredible results -- MercadoLibre's Q2 revenues rose 57% from a year ago to $2.6 billion. In particular, fintech grew 107% to $1.2 billion, driven by its growing consumer credit division. At this rate, fintech may overtake commerce as the largest business segment, which may cause the stock to be valued more like a payments company rather than a commerce company.
At 4.5 times sales overall, MercadoLibre has reached its lowest valuation since the depths of the Great Recession.
MELI PS Ratio data by YCharts
Considering that MercadoLibre trades at a similar level to payments company PayPal (3.7 times sales) and e-commerce business Amazon (2.4 times sales), MercadoLibre's stock seems vastly undervalued. While MercadoLibre is still more expensive than those two, it is growing its fintech (107% YOY) and commerce (23% YOY) divisions much faster than its respective comparative companies.
MercadoLibre's business is just getting rolling -- don't let the negativity in the U.S. distract you from work it's doing in Latin America.
One thing to remember about these three companies is that the stocks may take a while to recover. No one knows what the future will hold; it could be another few years of pain. So any money you need in the next three to five years shouldn't be invested. However, if you have the extra resources to invest now, there are few better buys than these stocks.
